US Bank 2015 Annual Report Download - page 168

condition and results of operations. The Company’s
management must exercise judgment in selecting and
applying many of these accounting policies and methods so
they comply with generally accepted accounting principles
and reflect management’s judgment regarding the most
appropriate manner to report the Company’s financial
condition and results of operations. In some cases,
management must select the accounting policy or method to
apply from two or more alternatives, any of which might be
reasonable under the circumstances, yet might result in the
Company’s reporting materially different results than would
have been reported under a different alternative.
Certain accounting policies are critical to presenting the
Company’s financial condition and results of operations. They
require management to make difficult, subjective or complex
judgments about matters that are uncertain. Materially
different amounts could be reported under different conditions
or using different assumptions or estimates. These critical
accounting policies include the allowance for credit losses,
estimations of fair value, the valuation of purchased loans and
related indemnification assets, the valuation of MSRs, the
valuation of goodwill and other intangible assets, and income
taxes. Because of the uncertainty of estimates involved in
these matters, the Company may be required to do one or
more of the following: significantly increase the allowance for
credit losses and/or sustain credit losses that are significantly
higher than the reserve provided, recognize significant
impairment on its goodwill and other intangible asset
balances, or significantly increase its accrued taxes liability.
For more information, refer to “Critical Accounting Policies” in
this Annual Report.
Changes in accounting standards could materially
impact the Company’s financial statements From time to
time, the Financial Accounting Standards Board and the
United States Securities and Exchange Commission change
the financial accounting and reporting standards that govern
the preparation of the Company’s financial statements. These
changes can be hard to predict and can materially impact
how the Company records and reports its financial condition
and results of operations. The Company could be required to
apply a new or revised standard retroactively or apply an
existing standard differently, also retroactively, in each case
potentially resulting in the Company restating prior period
financial statements. As an example, the Financial Accounting
Standards Board has issued proposed guidance related to a
change in the accounting for credit losses on financial
instruments. This proposed guidance represents a significant
departure from current accounting guidance and requires
earlier recognition of credit losses in a company’s financial
statements as it utilizes an expected credit loss concept
rather than the incurred loss concept. This new guidance is
expected to be adopted by way of a cumulative effect
adjustment recorded to beginning retained earnings upon the
effective date.
The Company’s investments in certain tax-advantaged
projects may not generate returns as anticipated and
may have an adverse impact on the Company’s
financial results The Company invests in certain tax-
advantaged projects promoting affordable housing,
community development and renewable energy resources.
The Company’s investments in these projects are designed to
generate a return primarily through the realization of federal
and state income tax credits, and other tax benefits, over
specified time periods. The Company is subject to the risk
that previously recorded tax credits, which remain subject to
recapture by taxing authorities based on compliance features
required to be met at the project level, will fail to meet certain
government compliance requirements and will not be able to
be realized. The possible inability to realize these tax credit
and other tax benefits can have a negative impact on the
Company’s financial results. The risk of not being able to
realize the tax credits and other tax benefits depends on
many factors outside of the Company’s control, including
changes in the applicable tax code and the ability of the
projects to be completed.
RISK MANAGEMENT
The Company’s framework for managing risks may not
be effective in mitigating risk and loss to the Company
The Company’s risk management framework seeks to
mitigate risk and loss. The Company has established
processes and procedures intended to identify, measure,
monitor, report, and analyze the types of risk to which it is
subject, including liquidity risk, credit risk, market risk, interest
rate risk, compliance risk, strategic risk, reputational risk, and
operational risk related to its employees, systems and
vendors, among others. However, as with any risk
management framework, there are inherent limitations to the
Company’s risk management strategies as there may exist, or
develop in the future, risks that it has not appropriately
anticipated or identified. The recent financial and credit crises
and resulting regulatory reform highlighted both the
importance and some of the limitations of managing
unanticipated risks, and the Company’s regulators remain
focused on ensuring that financial institutions build and
maintain robust risk management policies. If the Company’s
risk management framework proves ineffective, the Company
could incur litigation and negative regulatory consequences,
and suffer unexpected losses that could affect its financial
condition or results of operations.
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